After post-Cold War military contracts shriveled up, Silicon Valley took on a saucy new partner: pornography. As far as industrial complex playmates go, the naked ladies beat the hell out of the Pentagon.

By Michael Learmonth

Lew Payne's personal journey from soft-spoken programmer to Internet porn pioneer was short and, by his account, unintentional. Back in 1994, before Netscape and Yahoo brought the World Wide Web to the masses, Payne started hosting persiankitty.com, one of the first directories of porn sites on the web. Initially, Payne thought the site would be a perfect place to market another venture, seduction.com, a site that sells the tapes and techniques of Ross Jeffries, author of the book Speed Seduction and a self-styled guru to the romantically challenged. Payne thought persiankitty.com would be the perfect tool to reach the web's nearly all-male demographic.

"The web was more a curiosity item than anything else," Payne remembers. "I had decided to host Ross Jeffries' website, but I needed another site to promote it."

So Payne posted perskiankitty.com, "sponsored by the Secrets of Speed Seduction," on the servers of Vianet, a local Palo Alto ISP. Then something happened that made Payne realize he was onto something big. So big, in fact, that he nearly forgot about Speed Seduction entirely.

The site is an alphabetical directory of links to porn sites that offer at least a few skin-pics for free. Almost immediately, Vianet was overwhelmed by the number of hits persiankitty.com was getting. Within four months of launching the site, persiankitty.com was getting 75,000 hits a day and Vianet simply couldn't support the traffic. Soon after, persiankitty.com's visitors saturated a T1 line and then a second, third and fourth. Finally, Payne helped Vianet upgrade to massive Cisco 7200 series routers and physically moved them across to the Palo Alto Internet Exchange (PAIX), one of the biggest Internet hubs on the West Coast.

Payne realized later he had tapped the greatest source of demand for content on the Internet. Within a year of launching, persiankitty.com had changed the way a lot of people think about the Internet. In 1996 it funneled 325,000 surfers a day to individual porn sites, where they clamored for bandwidth-munching pictures and videos, straining the capacity of the nascent Internet.

The web, as it turns out, is a medium made for porn. It's private, anonymous and interactive. By migrating to the web, porn tapped an enormous pool of consumers, most of whom seem to be e-porn surfing during work hours, when 70 percent of porn surfing takes place.

While there is no definitive measurement, many analysts agree that men seeking pornographic material account for about 40 percent of the searches conducted on the Internet each day. Since images and video take up so much more bandwidth than, say, email, porn surfers probably consume close to 70 percent of the Internet's capacity.

These surfers and millions like them changed the fortunes of many Silicon Valley corporations, large and small. Indeed, without porn, the economic miracle of the second half of the 1990s would be much more of a yawner. There would be fewer people on the streets of downtown San Jose and Palo Alto, and fewer swanky restaurants. More homes would still be in the six-figure price range, and commute times would be shorter. Sports figures, not Internet geeks, would appear in beer commercials; the stock market would be table conversation for few people other than brokers or retirees. Bus ads and billboards would again carry water conservation messages, presidential candidates would raise their money in Texas and Hollywood, and Time magazine could go back to covering global warming and international politics.

Yes, the seedy currency of stroke mags has emerged as a critical enabler of the New Economy, a source of early revenues to capitalizes R&D, turns young companies profitable, pushes up the salaries of working stiffs and turns the luckiest of the bunch into millionaires or billionaires. But don't expect to read about it in annual reports. Even though demand for pornography on the web fuels profits in Silicon Valley, the heart of the porno-industrial complex remains hidden beneath the floorboards, even as its heart beats in the air-conditioned router rooms, the executive suites and the boardroom.

BECAUSE MOST OF the companies directly purveying porn are private, any estimate of the size of the porn industry is just that, an estimate. Porn sites were the first to turn a profit on the web, followed recently by stock trading and investment sites like E-Trade and Schwab.

Next year, analysts expect the Internet porn industry to reach a poignant milestone. The year 2000--call it "Y2B"--will be the year that porn websites turn $2 billion in profits.

"The biggest sex sites make more than $100 million annually," says Mark Hardie of Forrester, one of the only analysts tracking the industry. But revenues are just the beginning of the story. More importantly, Hardie believes the demand for porn generates $10 billion a year in technological innovation that is ultimately adopted for other purposes.

The largest chunk of that figure lines the pockets of executives and stockholders of Silicon Valley's biggest companies. The unwavering demand for porn on the web drives demand for increased bandwidth, more robust servers, faster desktop computers and new software that can deliver images and video quickly and efficiently.

"If you're interested in email or work, you don't care how long it takes a graphic image to come onto your computer," Jeffrey Douglas, a lawyer and director of the Free Speech Coalition, says. "If you've discovered the ability to download [porn] images, then you want cutting-edge technology: faster computers, bigger hard drives and bandwidth."

PERHAPS MOST directly profiting from porn traffic are Silicon Valley's huge ISPs that provide server space, connectivity and bandwidth to the most visited porn sites on the web.

Exodus Communications is a publicly traded company fronted by former IBM exec Ellen Hancock. Listed by Data Communications as the third-largest ISP in the nation, Exodus hosts the servers of 10 of the 100 biggest porn sites in the world in its facilities. These are such sites as the porn titans book-mark.net and babylon-x.com. In its SEC reports, of course, Exodus lists its more mainstream clients, such as Inktomi, DoubleClick, Lycos and SF Gate, the San Francisco Chronicle's website.

An Exodus media representative refused to comment about the impact of online pornography on the company. Nor would this person say who Exodus' top five customers are.

AboveNet, which is building a huge co-location facility for Internet servers in the Pavilion in downtown San Jose, was a little more forthcoming, but still unwilling to discuss the impact of porn on its business. Data Communications lists AboveNet as the top ISP in the world specializing in "adult content." When informed of this, spokesperson Terese Tricamo says that distinction is an error that she will look into.

AboveNet hosts the wild online auction firm eBay, and the site from which surfers can download Real Player. (Real Player, incidentally, is one of the technologies incubated by porn demand, and it has become the standard software for viewing streaming video on the web.) On the list of AboveNet's accomplishments was handling the spike in bandwidth demand for Real Player hours before the Victoria's Secret show, which became the largest web streaming event in history. AboveNet also handled 375,000 simultaneous streams of Mariah Carey's "Heartbreaker" sent out by client E-Media.

AboveNet, like other large ISPs (or "co-location facilities," as they prefer to be called), rents server space and charges for bandwidth by the megabit. The advantage for a porn site, or any high-bandwidth site, is that AboveNet can accommodate huge fluctuations in demand without interruptions to "mission critical" Internet operations. ("Mission-critical" is also big in Internet-speak these days.)

"We have clients who will be humming along at 10 megabits per second and need, at a split second, to gain access to seven or eight times that capacity," explains marketing manager Miles Kelly. "Our network provides the headroom."

EVERY CORNER of the information superhighway is traveled by pornographic material. Packets of porn come and go across an ISP's network and it looks like any other information. Most ISPs simply don't want to know what content streams across their wires. ISPs that host porn servers sometimes will leave them unlabeled in their air-conditioned systems rooms or they will bolt them into racks behind closed doors.

Typically, the only nod that companies like Exodus and Abovenet give to their skin-pic client list is in reports filed with the Securities and Exchanges Commission, where they must disclose potential risks to investors.

In Exodus' most recent S-4 filing, the officers disclose: "The law relating to the liability of online services companies and Internet access providers for information carried on or disseminated through their networks is currently unsettled. The Child Online Protection Act of 1998 imposes criminal penalties and civil liability on anyone engaged in the business of selling or transferring material that is harmful to minors, by means of the World Wide Web, without restricting access to this type of material by underage persons. ..."

In other words, however unlikely it may be, Congress could pass a law eliminating this area of e-commerce almost overnight, damaging profits at Exodus, Abovenet and any number of other companies that funnel porn to the web.

Playboy.com's possible IPO notwithstanding, it's a concern that keeps most porn outfits from selling shares to the public.

With that kind of risk out there, Mark Hardie says, "investors and underwriters would be reluctant to get involved."

Thus, while some Internet porn outfits have grown huge--www.xpics.com and www.sex.com each grossed close to $100 million last year--most will remain small. "It's like the Gold Rush era," says Jane Duvall, operator of the "amateur" porn directory janesguide.com. "The people making money are selling stuff to the miners."

One such business is Flying Crocodile, an all-porn ISP founded by Andrew Edmonds. "If you look at the major data centers on the net--Exodus, Flying Crocodile, Uunet--you will find their biggest clients are porncity.com or sexhound.com, not CNN," Edmonds says. "What they can do with that one client is justify the infrastructure for 20 more routers and provide bandwidth growth for mainstream businesses."

ANY JOURNEY TO the center of porn in Silicon Valley must necessarily include a stop at Lew Payne's office in a one-story tilt-up on a frontage road next to 101 in Palo Alto. It is here that Payne rents a small office from Vianet, located next to the Bay Life Church for Religious Science.

Once Vianet provided mostly local dial-up access to the Internet for home users. But persiankitty.com's success has allowed the small ISP to grow into a co-location facility that hosts, among other things, Linux.com.

Payne, 39, is a pleasant-looking fellow with a short salt-and-pepper mustache, white skin and jet-black hair combed straight back. He's wearing pleated slacks and a striped shirt like someone's friendly, if a tad geeky, older brother. Even after an hour of conversation, Payne's strait-laced personality hardly jibes with the file names on the hard drive of one of his two cobbled-together PCs: "Blue Dildo," "Inserting Corn," "On Couch with Black Dong," "In Shower with Cucumber," "On Chair with Banana."

Payne knew persiankitty.com was becoming a phenomenon when he started taking advertising for the site and got way more inquiries than he could accommodate. At the time pay-porn sites began to proliferate, "persian" and "kitty" were among the top 100 search terms used on the web.

Payne started thinking about how he could accommodate more requests for advertising. Payne's costs for his free site are completely covered by banner sales. But if he put up too many banners, the page would take forever to load and frustrate the gentlemen at home with 486 PCs and 14,000-baud modems.

The obvious answer was to rotate the banners on his site. But how? He experimented with programs written in Perl and in C, but they were too slow. Finally, he grafted a program directly onto the Persian Kitty web server's Apache software.

The program allowed him to rotate advertising banners, boosting site revenue by increasing the number of spaces he could sell. Then he set up a database to collect information on who was clicking on which banners and what they did afterward. Rotating banners, of course, are now part of just about every commercial website that accepts advertising.

In the beginning, the demand for porn was staggering. "People spent 30 minutes to download an eight-megabyte MPEG which lasts 45 seconds," he says.

Late in 1996, as traffic reached 750,000 hits a day, Payne realized that 20 percent of those hits were coming from America Online. When he presented his facts to AOL, they agreed to a unique peering agreement between Persian Kitty's servers and AOL's in Vienna, Va.

Above Reproach: AboveNet is building a huge co-location facility for Internet servers on the site of the failed Pavilion Shops in downtown San Jose, built by the Redevelopment Agency with public tax dollars. Data Communications lists Abovenet as the top ISP in the world specializing in 'adult content.'

RECENT HISTORY has shown that the surest way to get new technology into the market is to have it adopted by the porn industry. When the adult film industry adopted video in the late 1970s, it assured that soon there would be a VCR in nearly every American home. In the 1990s, Hollywood watched as the porn industry adopted the digital video disk (DVD) before it started releasing features in digital format. Not surprisingly, the first motion picture recorded entirely digitally was the porn opus Bobbysox.

"Every major software and technology has had tryouts in the X-rated industry," Jeffrey Douglas says. "The people marketing CD-ROMs will acknowledge that their success is dependent on getting the industry to adopt their technology."

A digital movie, Douglas points out, can record eight different views of the same scene simultaneously--a capability that could enhance porn in ways it couldn't the latest Patrick Swayze movie.

In the 1980s, the advent of 900 numbers reaped untold millions for local and long distance phone carriers, and caused them to upgrade their systems to handle demand. When the web killed 900 numbers, the phone companies were there, ready to provide second phone lines to web surfers and ultimately getting into the ISP business themselves.

"The adult entertainment business historically has been the early major driver and the first to profit from new technologies," says Hugo Barreca, chief technology officer of Princeton Media Group, publisher of Oui magazine, Gent and 21 other titles.

The impact of porn on the high-tech economy is staggering. Take the following statistics provided by SexTracker:

The most popular porn server: Silicon Graphics Origin 2000; the most popular operating system: FreeBSD; ISP of choice: AOL; most popular search engine for porn surfers: Yahoo; the most popular browser: Microsoft Internet Explorer.

Porn sites were also the first to collect detailed marketing data on their visitors.

"Clearly they were enthusiastic early-adopters," says Michael Christian, COO of Webside Story, a company that collects information on surfer behavior. "They have an audience that rewards them for being sophisticated."

Services like Webside Story and SexTracker constantly monitor their data to try to stay ahead of the myriad tricks porn sites come up with to boost traffic.

"Porn sites tweak their technology to serve their needs," Hardie says. "To raise hit rates and ad revenues, the top adult sites manipulate the browser's back button, forcing the same web page to reload. Another hit-rates trick spawns a new browser window if the user exits the application, loading a different adult site as many as five times."

Hardie believes it's only a matter of time before "legit sites," as he calls them, adopt these tactics to boost flagging traffic numbers.

"Real Player is being used and Quicktime isn't," Jane Duvall says. "If we don't adopt it, it dies."

Ironically, while Real Player has become the standard for web streaming, the technology remains too expensive for just any site.

"The only places that can afford licensing for these streams are huge corporations and adult sites," Payne says. "They make a lot of money off the adult arena and can improve their technology."

ANDREW EDMONDS, 26, saw the money-making potential of Internet porn two years ago and left his job at Seattle's Real Networks (maker of Real Player) to start his own ISP specializing in adult content. His company, Flying Crocodile, is the 48th most visited on the web. And since most of Flying Crocodile's clients are bandwidth-hogging adult sites, it ranks 24th in the world in the amount of data it sends onto the Internet.

"Big, high-resolution pictures take up more space than email," he explains.

When the receipts are tallied for 1999, Edmonds expects the Internet porn industry to gross $1.8 billion in sales. That number could grow to $7 billion in the next five years, making Internet porn a more profitable industry than Hollywood.

Yet as profitable as Internet porn is, the industry is far from secure.

As fast as porn profits skyrocket, the Internet is growing even faster, so each year porn sales amount to a smaller percentage of the whole e-commerce pie. Forrester Research estimates that 11 percent of all online sales in 1998 were porn-related. Mark Hardie expects that number to drop to 8 percent in 1999.

As long as corporations like Cisco and Microsoft benefit, Edmonds believes the content will remain legally protected. But as the mainstream economy catches up to porn on the Internet, Edmonds worries that companies like his may have a First Amendment battle on their hands.

"Once the benefit is used up, the mainstream Internet will be doing so well they'll want us out," Edmonds says.

Each year, a blizzard of legislation like the Communications Decency Act is introduced in Congress to limit the kind of material available on the web. While the forces of free speech and privacy have thus far prevailed, it's hard to argue with the idea that some kind of rating system could be in order.

Take the example of one pundit who asked what his daughter would find if she were looking for a summer camp on the web and typed the keywords "girls" and "horses" into a search engine.

The answer, Edmonds believes, lies not in censorship but in better technology. He believes adult sites would be more than willing to attach an electronic tag to pornographic content. Then systems administrators could use intelligent routers to recognize the porno in the packets of data, allowing them to screen the porno out of an elementary school, say, or a workplace.

LEW PAYNE AND Beth Mansfield vet Persian Kitty's 4,000-plus links for any content that might be illegal, such as underage models, nonconsensual sex and anything else they find distasteful.

"Anything extreme is gone," Payne says. The most labor-intensive part of the operation is going through the links, page by page. "Beth sees it as a job," he says. "It ends up being a lot of work."

Payne won't reveal any of Persian Kitty's financial numbers except to say that in the site's infancy it was grossing more than $80,000 a month. This for a site that has always operated simply as a directory to other sites.

But Payne has plans for Persian Kitty that will take the site where it's never gone before. Recently, Payne and Mansfield consummated a five-year licensing deal with Princeton Media Group to publish and market Persian Kitty magazine.

What's more, Payne is getting into the porn content business for the first time. Later this month, Persian Kitty will launch its first pay-site with original content.

Payne believes that soon, as the technology and infrastructure become ubiquitous, porn pictures will fade into the background.

"The web is moving so that video is going to be the mainstream offering while pictures are going to be secondary," Payne predicts.

So, in a stack of CDs on a bookshelf in his office, is the content: each contains a video and photo shoot of a model, as well as video-clip interviews and before-and-after outtakes. Payne hired the models, supervised the shoots and conducted the interviews in downtown Los Angeles.

He loads a CD of former Penthouse cover girl Leah Willis and turns up the volume on his computer. Suddenly the image appears. Leah, dressed in a sports bra and blue panties, follows the photographer's directions.

"Hold that," he says as she sticks out her backside. "Take all the time you need" ... "Show your breasts" ... "Turn your bottom to me" ... "Swing your chest around a little." ... "More" ... "Yeah, like that" ... and so on.

Payne thinks his niche is for people who want hardcore porn but also want the glamour of a Playboy-like shoot. But why join the herd when so many thousands of others are already carving out ever-smaller niches catering to the desires of men?

"There are a lot of adult sites out there and they're pretty mediocre," Payne says. "We've taken revenue from the adult industry and spent it creating what is many levels better than what's out there. I like the challenge."